Document Type

Article

Publication Date

8-2019

Abstract

We propose a fairly general individual effects stochastic frontier model, which allows both heterogeneity and inefficiency to change over time. Moreover, our model handles the endogeneity problems if either at least one of the regressors or one-sided error term is correlated with the two-sided error term. Our Monte Carlo experiments show that our estimator performs well. We employed our methodology to the US banking data and found a negative relationship between return on revenue and cost efficiency. Estimators ignoring time-varying heterogeneity or endogeneity did not perform well and gave very different estimates compared to our estimator.

Comments

Original published version available at https://doi.org/10.1016/j.jeconom.2019.01.014

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

First Page

539

Last Page

559

Publication Title

Journal of Econometrics

DOI

10.1016/j.jeconom.2019.01.014

Included in

Finance Commons

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